The 2019 Loan Charge heralds HMRC to collect taxes that taxpayers (mostly self-employed) allegedly avoid through disguised remuneration, including contractor loan schemes. HMRC is to collect taxes from anyone the deem is in violation and used a disguised remuneration scheme from 6th April 1999.
Self Employed individuals would have received their income through a loan scheme, this loan will be treated as income and will be taxed as such from 5th April 2019. HMRC requires all of this due tax to be paid by 31st January 2020 – the deadline for self-assessment tax returns.
Arguing that it is unfair to retrospectively tax individuals who used these schemes which were technically legal at the time, MP Stephen Lloyd has launched an Early Day Motion (EDM) against the 2019 Loan Charge,
To assume that taxpayers had any insight of the unethical practice of loan schemes has been seen to be unfair as in many cases these schemes were recommended by third-parties.
Lloyd stated that the charge “is likely to cause financial distress and bankruptcies…” the amounts HMRC deems owed by taxpayers could be in the tens of thousands. Reports have been made where contractors feeling the stress and pressure of the imminent loan charge, helplines have been called for those in distress.
WHAT COUNTS AS DISGUISED REMUNERATION
HMRC will be analysing the scope of all loans meeting the criteria as income on 5th April 2019, they are subject to be taxed at the current income tax rates rather than the previous rates at the time. HMRC may also request interest to be paid if it has previously opened an enquiry.
A SIMPLE EXAMPLE OF DISGUISED REMUNERATION THROUGH A LOAN SCHEME:
- A contractor on a payroll provider or accountant who recommends a way in which they can pay less tax
- The contractor is being paid £5,000 for a month’s work
- The contractor, payroll provider/accountant are on a loan scheme such as an Employee Benefit Trust (EBT)
- The EBT reduces the contractor’s tax liability by taking £5,000 and paying it back to the contractor as a loan, with the understanding that the loan will not be repaid
- As it is a loan the £5,000 is not taxed – the EBT will take a percentage as their fee
This scenario is often more complicated; for example the use of a loan scheme rolling over a number of years, amassing large amounts of unpaid tax. Other factors to consider include any interest accumulating on the loan, accelerated payment notices by HMRC.
ARE YOU AFFECTED
If you discover that you were part of a loan scheme or other disguised remuneration scheme from 6th April 1999, you have some options to consider:
- Apply to postpone the loan charge – this will allow you to postpone the date of paying a charge on any loan taken from 5th April 1999 to 9th December 2010. You must register by 31st of December 2018. This can only be done if the loan was made before 9th December 2010.
- Look for a settlement with HMRC – a settlement will try to prevent the Loan Charge applying on 5th April 2019 and pay the tax owed. You must register by 30th September 2018.
- Pay the 2019 Loan Charge once it comes into effect.
Third-party loans made from 6th April 1999 will become taxable on 5th April 2019 – plus interest if HMRC has raised an enquiry.
Loan Charge is not to be ignored. If you discover that you are currently using a disguised remuneration scheme, it is best to remove yourself immediately and use a compliant provider.
Time is running out as the original deadline to register for settlement was 31st May 2018, but HMRC has extended until 30th September 2018.
HMRC advises: “To start settling your tax affairs, you should register your interest with HMRC as soon as possible and provide all of the required information by 30th September 2018.”
SEEK ADVICE ON THE 2019 LOAN CHARGE
If you believe you will be affected by the 2019 Loan Charge, it may be best to seek professional legal advice before taking any action. There are solicitors in the UK who can review your position and help you take the appropriate course of action for your circumstances.
Please note, as a professional accountancy firm we can help with legal or otherwise, on the 2019 Loan Charge. We here at Devonshire Green can explore your payroll options and help you maximise your take home pay legally as a compliant and regularly audited accountancy and payroll provider.
Contact us to explore your accountancy and payroll options.